S&P says MENA sovereign creditworthiness has deteriorated

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Standard & Poor’s Ratings Services (S&P) said today that overall sovereign creditworthiness in the Middle East and North African (MENA) region has deteriorated since S&P last published six months ago.

S&P rates nine of the 13 Middle East countries in the BBB rating category or above. It said the average sovereign rating is now close to BBB. When weighted by GDP, the average moves closer to BBB+, S&P said.

‚ÄúThis average, weighted by nominal GDP, has fallen more sharply than the unweighted average over the past six months because we have lowered the rating on the region’s largest economy, Saudi Arabia,” S&P’s sovereign analyst Trevor Cullinan said in the report. “During that time, we also assigned B-/B long- and short-term foreign and local currency sovereign credit ratings to The Republic of Iraq, which has a relatively large economic weight compared with other MENA sovereigns.”

Cullinan said the averages mask a clear difference between those sovereigns with a significant hydrocarbon endowment and those without.

S&P said the average rating for the hydrocarbon-endowed sovereigns of Abu Dhabi, Bahrain, Iraq, Kuwait, Oman, Qatar, and Saudi Arabia is currently close to A, having been at ‘A+’ prior to the downgrade of Saudi Arabia and the inclusion of Iraq in the average. For those with more limited hydrocarbon resources — Egypt, Jordan, Lebanon, Morocco, Ras Al Khaimah, and Sharjah — it is closer to BB+.

S&P downgraded Saudi Arabia’s ratings to A+ from AA- in October 2015 due to the deterioration in the Kingdom’s fiscal position. It lowered its ratings on Oman to BBB+ from A- in November. S&P said it had stable outlooks for nine of the 13 MENA sovereigns it rates. Bahrain, Lebanon, Oman and Saudi Arabia, have negative outlooks, S&P said.

S&P said it expected GCC states to maintain their exchange rate pegs against the dollar.